“Compared to the spoken word, a picture is a pitiful thing indeed.” – Zig Ziglar
This is my favorite quote from this legendary American author, coach, speaker and salesperson. Zig died 10 years ago but this powerful message is truer than ever in 2022 after two years of homeschooling, remote working, texting and emailing.
I can understand huge Wall Street players like Blackrock, Invitation Homes and hedge fund investors purchasing hundreds of thousands of homes across America over the past 10 years and converting them to rental properties without talking face to face to a local real estate broker or mortgage banker about the house and the neighborhood, and paying cash for the home without any appraisal or inspections based solely on the internet listing photos, but I sure wouldn’t do it.
Blackrock bought a home for all cash in Vacaville six months ago for well over the asking price of $700,000 that, according to the local listing agent, appears to still be locked up and vacant as of last month.
This past Sunday, “60 Minutes” interviewed a representative of Tricon Residential, which now owns 30,000 single-family homes in the U.S., and the CEO made it clear that it is all about the math and good old supply and demand.
We are 4 million homes short in America and there are substantially more buyers in the sunbelt parts of the country than there are sellers. The income-producing asset (the house) has historically appreciated in value 3% to 4% annually on average and the rents increase, too, but if these investors think it’s going to be easy to provide a rate of return over 5% to their investors and stockholders, I think they will be disappointed.
Inflation helps rent increase, but inflation kills profits because of the increasing cost of maintenance, property management and employees. Vacancy can be costly, too, and sure, they can win small claims judgments against tenants who destroy a home and live in the house rent-free for four to six months during the eviction process, but these types of debts are not easy to collect.
I might buy a few things online, but I would never buy a $1 million house based on the photos or apply for an $800,000 jumbo loan with an online call center out of Texas or India. Middle- and upper-middle-class people should find ethical, experienced, dedicated and local real estate and mortgage professionals who can speak to you face to face, shake your hand and look you straight in the eye when they help you buy an investment property or the home you may live in for the next 30 to 40 years.
Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.